Woulda, Shoulda, Coulda

Here's am interesting, hypothetical (since I didn't do it), edifying trade to digest:

In my testing of DITM over the past 4 years, I considered annual dividends, with mixed results - usually depending on how they traded after the buy/write. I saw that Siemens (SI) was again coming up ex-D on Jan.24 (today) so I played it on paper, although I did make money last year on it after waiting it out. Here is the hypothetical trade
Jan.17 - buy stock $110.70, sell call (theoretical or mark price in the middle- wide spread) $5.95, for a net $104.75 before the $9 comm.
Jan.24, after ex-D- $107.87 (and rising), buy back call at 5.35 - net  $102.52, add in the dividend to receive -$3.90= $167 on 100 shares. 1.6% in a week. Or one could wait for April expiry. If SI is above 105 then, profit would be:$415, or 4% in 3 months or 16% annualized (if done 4 times- theoretical).  BTW - 1.6% annualized is 83%!!

That's What I'm Talkin' About

2013's first Option expiry was quite propitious for the DITM portfolio:
 First, my deeper DITM DIA was called away prematurely from  its March 122 call, thanks to the current rally. For the 3 month's holding period the annualized % was 14.50%
Three stocks had risen too far to roll out farther ( not enough extrinsic option premium):
AYR (Aircastle), which was held 11 months had an annualized (nearly identical) return of 13.73%.
KKR which had a rollUP of calls, plus an additional purchase of 200 shares, totaled an annualized 24.91% for 8 months holding.
IP (Paper) was also hel 11 months and netted of commissions (always) 15.78%
Finally, WAG (Walgreen's) after being held 5 months, was called away for a measly 9.85%.
Love these rallies, but don't expect them to continue throughout the year.

DJIA Vu

Although a Bull Rally is the next-to-least direction of the 5 possibilities (of my "Visible Hand"), the safety of getting 100% of my return is welcome. One of my DIA positions was called away early ( the March 122 call), rendering a 14.5% annualized return. It was held only three months, but to get $491 back, net of commissions, with a fair amount of safety - safer than an Index fund, for example- on an investment of  $13,548 is O K.
Below is a compilation of several time frames since the inception of my DITM. 

		DITM	Deep-	In-	The-	Money
Date	opened	#	#		Avg.	#
From	To	Stocks	Months		Return	Losses
Aug.'09	Nov.'10	14	7.5		9.84%	0
Oct.'09	Nov.'10	12	4.5		9.95%	2
Dec.'10	Apr.'11	14	2.5		13.32%	0
Jan.'11	Oct.'11	23	3		11.31%	0
May.'11	Dec.'11	20	6		9.31%	2
Jan.'12	Nov.'12	21	4.5		6.19%	4
	TOTAL	104	28		59.92%	8
	Avg/Yr.	17	5		10.00%	1.33

DITM REDUX

Although it is just a snapshot in time (much like a stock chart) my year-end statement of the small IRA, (which is a microcosm of my 4-year-old trading system: Deep-In-The-Money Covered Calls) showed a return of 9.27%. It reflects the purest example of DITM, as there are no MRDs ( minimum required distributions), nor contributions to, this IRA.

9% is not a world beating return, but it is somewhere in between the DJIA and the S&P 500 of 2012, without much of the whipsaws - due to its "safety net". Several timeframes of DITM have consistently returned around the 9-10% area.

Combining the two previous tables - stocks opened in 2011 and those opened in 2012 - here is the total for 2012:

	YEAR(Open)	#trades	net%	.......avg.mo.
GRAND	..2011	..20	..9.31%	....6
TOTAL	..2012	..21	..6.19%	....4.5
full year		..41	..15.50%
average		..21	..7.75%	....5.25

Using the conservative "covered call" option, and selling it below the Buy price of the underlying stock, one avoids most of the sine wave corrections and noise of the volatile market, while receiving (based on 20-25 stocks) a dividend every 3 trading days - Payday!   The DITM investor is also receiving decay from the sold call option every day ( called negative theta, to the Greeks), while the market stumbles in a sideways direction, which it basically has since 2000. With DITM as the base for the investment pyramid, one can also play Bull rallies outside of it with SPYs and other sector ETFs, call options, favorite stocks, etc.

After spending 3 1/2 hours last weekend at a lecture by legendary market analyst Martin Pring and his group, the prospect of an extended Bear market ( in Inflation adjusted terms) is corroborated by 18-year cycles - especially after the largest Bull market in present history - 1982-2000. Although extended rallies are probable, the timing of them - especially with current government intervention- is unlikely and unrealistic.

Obviously DITM is not for everyone. Only persons with the consistent interest in the stock market, who would be dedicated to monitor the plan occasionally would be successful at it. An interest in the most basic of option strategies - covered calls - is desired, but can be learned easily.

DITM2012

Results from DITM -opened in 2012, closed in 2012:
   DATE    SYM                   # MOS.   ANN.%

1/3/2012	VZ	6	8.06%
1/19/2012	SCCO	8	18.20%
2/21/2012	JNJ	5	5.00%
2/21/2012	NVS	5	10.40%
2/27/2012	TLT	3	4.31%
6/5/2012	PEG	6	10.33%
4/19/2012	MAT	4	10.92%
4/24/2012	STX	4	16.45%
4/27/2012	LLY	4	8.93%
5/1/2012	APL	6	23.80%
5/22/2012	SDY	4	7.82%
5/25/2012	SFL	4	16.29%
6/11/2012	HUN	3	40.00%
6/19/2012	IRM	3	5.60%
7/16/2012	QRE	3	14.87%
8/7/2012	AHGP	3	14.19%
4/19/2012	LINE	12	8.24%
	TOTAL%:		223.41%	div.17=.
				13.10%
2/1/2012	ERF	4	39.05%	(1866)loss
9/17/2012	VALE	2	7.73%	365loss
4/16/2012	CLF	2	18.89%	2607loss
10/18/2012	CLF	2		sold Puts
11/13/2012	PGH	3	27.09%	1980loss
	#months	96	92.76%	div.4=.
	23.19%	avg.mo:	4.5mo.	TOTAL:
TOTAL:	130%	#TRADES:	21	6.19%